For over a decade, Health Reimbursement Arrangements (HRAs) have been widely used by small business owners and one-person non-profits as a way to increase their tax savings and to receive tax-free health benefits. However, recent regulatory changes around the use of stand-alone HRAs put a halt to most businesses and organizations using a stand-alone HRA (for plan years starting January 1, 2014).
The good news is that stand-alone HRAs are still allowed under the ACA for one-person HRA plans. In other words, if your small business or non-profit stand-alone HRA only has one participant, you can continue to offer the stand-alone HRA in 2014 and beyond.
No Changes to One-Person Stand-Alone HRAs
On September 13, 2013 the Department of Labor released New Guidance on Tax-Free Reimbursement of Individual Health Insurance. The Technical Release 2013-03 clearly states that the new market reforms only apply to health plans with two or more participants:
"D. 1. Market Reforms – In General
The Affordable Care Act contains certain market reforms that apply to group health plans (the market reforms). In accordance with Code § 9831(a)(2) and ERISA §732(a), the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year..."
The big takeaway is that for one-person stand-alone HRAs, there are no plan changes needed. One-person HRA plans may continue to reimburse for qualified medical expenses such as co-payments, deductibles, and personal health insurance premiums -- just as they do today.
How Business Owners & One-Person Non-Profits Benefit from Stand-Alone HRAs
One of the most common groups using a one-person stand-alone HRA are C-Corporation owners. C-Corp owners often set up an HRA for themselves to allow their business to reimburse them tax-free for personal health insurance, and write off the HRA reimbursements as a tax-deductible business expense.
C-Corp owners may use the HRA to reimburse his or her medical expenses, as well as family medical expenses. A stand-alone HRA is an excellent option for tax-free business-owner health insurance.
Another group who commonly uses a stand-alone HRA in this way are one-person nonprofits and churches. For example, the organization will set up a stand-alone HRA to provide a health benefit to the Executive Director or Pastor. This is an excellent option for offering tax-free reimbursement of health insurance and medical expenses, and a way to provide key staff a health benefit without group health insurance -- which is often cost-prohibitive for the organization.
If you're a small business owner and file as an S-Corp, Partner, or LLC, read more about how you can use a stand-alone HRA for health benefits here: HRA Eligibility By Type of Small Business Owner.
Do you have questions about how one-person stand-alone HRAs are compliant in 2014? Leave a comment.
